US tax law a threat to financial sector

A new US tax law that could cost Australian financial services firms hundreds of millions is arguably the first of many more to come from around the world, warns financial technology outsourcing giant, CSC.

The information technology services company, which counts Westpac Banking Corp, Suncorp Group, AMP and Australia and New Zealand Banking Group among its Australian clients, warned that the US’s contentious Foreign Account Tax Compliance Act could start a “domino effect" among other countries that would seek to replicate the model to target tax fraud.

FATCA, which takes effect in 2013, is aimed at clamping down on American citizens and companies harbouring investments and assets offshore.

CSC director of banking, Simon Millett, argues that financial services firms in Australia, including banks and insurers, are susceptible to being forced to comply with similar tax regimes by other countries that might seek to launch their own versions of the US law.

“I think it’s inevitable – it’s not a risk, it’s actually going to happen," Mr Millett said. “This is already in place in the US, but this is also very much the internationalisation of an American tax structure on their citizens globally, to capture them in any market."

The planned laws would see Australian banks, insurers, managed funds, superannuation schemes and other trusts dragged into providing information about their financial accounts held by US citizens.

Foreign entities in which US taxpayers hold large interests will also need to be disclosed.

Those who fail to do so will be slammed with a 30 per cent withholding tax.

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“The challenge for Australia is that we haven’t really put it out there in the market place," Mr Millet said.

“In the European markets, the European regulator has said that it would manage FATCA related issues. This needs to happen here," he said.

Financial Services Council chief executive John Brogden was in Washington earlier this week to plead for superannuation funds to be excluded from the FATCA changes.

“If Australia’s concerns are not addressed, FATCA has the potential to cost the industry hundreds of millions of dollars," Mr Brogden said.

“Federal government support is critical for the Australian wealth management industry to reduce the cost and complexity of implementing the United States FATCA regime."

Business leaders and industry groups across Australia’s financial services industry have voiced their concerns on the cost impact, and said FATCA would add layers of technology and administrative burdens.

Westpac chief executive
Gail Kelly
has previously said the tax could put an “enormous burden" on banks due to the systems needed to track and report on US citizens who lived in Australia and used the bank’s services.

Director of policy at the Financial Services Council, Martin Codina, said Australian banks, fund managers and super funds were particularly affected by FATCA.